Ratings: ANICO, Washington Casualty, Grain Dealers, Nat’l. Guaranty, Am. Physicians

Standard & Poor’s Ratings Services today said it lowered its counterparty credit and financial strength ratings on American National Insurance Co. (ANICO) and its core subsidiaries, American National Life Insurance Co. of Texas, American National Property & Casualty Co., and American National General Insurance Co.(collectively, ANPAC), to ‘AA-‘ from ‘AA’. S&P also lowered its counterparty credit and financial strength ratings on Standard Life & Accident Insurance Co. (Standard) to ‘A’ from ‘A+’. The outlook on these ratings remains stable. In a related action S&P affirmed its ‘A-‘ counterparty credit and financial strength ratings on Garden State Life Insurance Co. with a negative outlook. “The downgrade of ANICO reflects the company’s uneven sales and earnings as it changes its business focus,” explained credit analyst Tim Clark. “The foundation of ANICO has been home service business, which traditionally has been very strong. In more recent years, the strong sales and earnings from home service products have weakened as the marketplace has changed and interest rates have declined.” S&P also noted that “ANICO has diversified into the independent market. Sales growth in this market generally has been strong but somewhat offset by the decline in other areas. The downgrade of ANPAC is related to the challenges that ANICO, the parent company, is facing. Our opinion of ANPAC’s financial performance remains unchanged.
The downgrade of Standard reflects our belief that external influences could affect the long-term commitment of both Standard and ANICO to health insurance.”

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘B+’ (Good) and issuer credit rating (ICR) of “bbb-” of Washington Casualty Company (WCC), and has revised its outlook on the ratings to stable from negative. Best also affirmed the FSR of ‘A-‘ (Excellent) and ICR of “a-” of Michigan-based MHA Insurance Company (MHAIC), an affiliate of WCC. The outlook for these ratings is stable. “The revised outlook for WCC is based in large part on the September 2008 settlement of litigation against WCC filed in December 2007 by Oregon Health and Sciences University (OHSU), Best explained. “Through mediation ordered by the court, OHSU’s claims against WCC were settled for $21.3 million, with WCC responsible for $2.1 million of the total settlement. WCC’s capital position was strengthened further by a cash contribution in December 2008 by its owner, FinCor Holdings, Inc. (FinCor). The rating affirmations of WCC reflect its improved capitalization, recent overall improvement in operating results and the implicit parental support from FinCor. WCC has attained benefits through its strong ties to the local hospital association, which has sustained business retention levels despite prior financial difficulties, and the recent litigation now resolved in Oregon. WCC has achieved expense reductions due to lower reinsurance and administration costs since its acquisition by FinCor.”

A.M. Best Co. has revised the outlook to negative from stable and affirmed the financial strength rating of ‘B+’ (Good) and issuer credit rating of “bbb-” of Indiana-based Grain Dealers Mutual Insurance Company. “These rating actions reflect Grain Dealers’ adequate risk-adjusted capitalization, management’s actions designed to reduce exposures to natural catastrophe events and the company’s expanded catastrophe reinsurance program, “said Best. Offsetting these positive rating factors are Grain Dealers’ historically volatile operating results, fluctuating risk-adjusted capitalization and ongoing exposure to weather-related losses and pension liability charges. Following years of volatile earnings due to natural catastrophes and several one-time expenses, all reflective of a lack of adequate risk management procedures in the past, management restructured Grain Dealers’ catastrophe reinsurance program to include significantly higher levels of protection and pulled back from hurricane-exposed coastal regions. Furthermore, the company froze its pension obligation limiting its related charges to interest rate shifts. Nonetheless, these efforts did not prevent Grain Dealers from incurring either large storm or pension liability charges in 2008. Grain Dealers is a multiple line carrier providing coverage primarily in the Southeast and Midwest, with a premium-based business mix of roughly 65 percent commercial and 35 percent personal lines. The company’s production emphasis in recent years has continued to be small to mid-sized commercial business.”

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘C+’ (Marginal) and issuer credit rating (ICR) of “b-” of Arizona-based National Guaranty Insurance Company with negative outlooks. Best concurrently withdrew the ratings at the company’s request and assigned a category NR-4 to the FSR and an “nr” to the ICR. “The ratings reflect National Guaranty Insurance Company’s marginal capitalization, highly aggressive premium growth expectations and the unpredictability surrounding management’s operating strategies,” Best explained. “Risk-adjusted capitalization is expected to decline as geographic expansion and premium growth is expected to occur at a faster pace than surplus growth. This aggressive growth strategy is expected to cause underwriting leverage to rise and adversely impact the company’s risk-adjusted capital position. In addition to the aggressive growth strategy, management will face marketing and execution challenges in view of the current competitive market conditions. Partially offsetting these negative rating factors are the company’s improvement in current underwriting results and management’s plan to maintain a conservative, highly rated investment portfolio.”

A.M. Best Co. has affirmed the financial strength rating of A- (Excellent) and issuer credit rating (ICR) of “a-” of Texas-based American Physicians Insurance Company. Best also affirmed the ICR of “bbb-” of API’s parent holding company, American Physicians Service Group, Inc. (APS). The outlook for all ratings is stable. Best stated: “These ratings continue to reflect API’s excellent risk-adjusted capital position, favorable operating performance, experienced management team and strong policyholder retention. The ratings also take into consideration the financial flexibility of APS. The only long-term debt at the holding company consists of $7 million in mandatorily redeemable preferred stock, which is to be redeemed at $1 million per year through 2016. Partially offsetting these positive rating factors are the market risks associated with being a predominantly single state, monoline medical professional liability insurer as it relates to price competition, loss cost trends and regulatory challenges.”